Schools, hospitals and charities could be among the biggest losers in the event of a future bank collapse under changes to the law being proposed by the Coalition.

Some of the country’s most crucial organisations face “real danger” if draft rules published yesterday are enacted, business groups warned.

The rules are expected to enshrine in law for the first time so-called “depositor preference”, which would see retail depositors paid back ahead of all other creditors in the event of a bank’s collapse. That has raised concerns that other organisations – from hospitals to small businesses – would be left worse off in the event of any new crisis.

The Institute of Chartered Accountants said the legislation offered largely unnecessary extra protection to retail customers at the expense of other vulnerable groups. “There is a real danger that this will result in businesses without sophisticated finance functions – charities, hospitals, local authorities, schools and universities – all losing out,” said Iain Coke, head of financial services at the Institute.

“They would not be able to use supposedly safe ring-fenced banks with confidence, and would essentially end up providing capital to be risked. This would not be fair.”

Mr Coke said the new law was more about protecting government finances than retail customers. He pointed out that retail depositors are already protected by the Financial Services Compensation Scheme which guarantees deposits up to a limit of £85,000 per bank.

The publication of the draft legislation follows more than nine months of work by Treasury officials, who were given the task of working out how to implement the recommendations of the Government-appointed Independent Commission on Banking. Among the biggest changes will be rules forcing lenders to ring-fence their retail banking operations from riskier activities such as investment banking.

However, in a move likely to upset the banking industry, the Treasury has passed on responsibility for key details on exactly what can and cannot be placed inside the ring-fence. Instead, decisions on what derivatives businesses can go inside the ring-fence will be left to the Commission on Banking Standards, which is chaired by Conservative MP Andrew Tyrie.

Mr Tyrie’s Commission, which is composed of a cross-party group of MPs and Lords, will also conduct the pre-legislative scrutiny of the draft rules and is expected to report back to the Government by December 18.